Exam 10: Externalities and Property Rights

Private incentives in markets with external benefits lead to _____;private incentives in markets with external costs lead to _____.

In the case of ______,the invisible hand fails to generate the efficient outcome because buyers and sellers only take their self-interests into account.

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Refer to the information given above.What is the total economic surplus if the cigar smoker refrains from smoking?

Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine.One of the demand curves in the diagram reflects private benefits and the other reflects social benefits. Refer to the figure above.The socially optimal number of vaccines is _______.

Suppose there are ten people playing cards in a room.One of them wants to smoke a cigar;nine of them dislike the smell of cigar smoke.The smoker values the privilege of smoking at $5,and each of the other nine occupants of the room would be willing to pay fifty cents for clean air in the room.The rules governing use of the room state that smoking is not allowed unless everyone agrees to allow smoking. Refer to the information given above.Which outcome is consistent with the Coase Theorem?

The tragedy of the commons is an example of:

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. Unkempt Well-groomed Net Value to Taylor 0 -1 Net Value to Taylor's neighbors 0 +10 Refer to the information given above.Taylor's neighbors would be willing to pay Taylor ______ to keep a well groomed lawn.

Shel and Fran are neighbors.They work at the same firm and hold the same title.Shel finds that when Fran's consumption rises,Shel feels worse off.Fran feels the same way towards Shel's consumption. Refer to the information given above.Suppose the firm that employs both Fran and Shel begins to offer one hour of overtime at 1.5 times their base hourly wage.It is likely that:

Shel and Fran are neighbors.They work at the same firm and hold the same title.Shel finds that when Fran's consumption rises,Shel feels worse off.Fran feels the same way towards Shel's consumption. Refer to the information given above.Suppose that the firm that employs both Fran and Shel began offering an hour of overtime at 1.5 times their base hourly wage and that both Fran and Shel worked the additional hour.A few weeks later the firm began offering a second hour of overtime at 1.5 times their base hourly wage and that both Fran and Shel worked that second additional hour.An effective mechanism to avoid working all day and all night as their employer offers more and more overtime,Fran and Shel could:

The major implication of the _______ is that individuals can solve many externalities if they can buy and sell the right to generate the externality.

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month. Refer to the information given above.The least costly solution to the externality present in this situation is for:

Suppose that in most car collisions between cars of unequal size,the smaller car sustains the most damage and its occupants suffer the most injury.In answering the following question,assume that,on average,smaller cars generate less air pollution and that every person in the economy drives at least one car. Refer to the information above.Suppose the size of all cars increased by 25%.Collisions between two cars would cause ______ and air pollution would ______.

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month. Refer to the information given above.Curly and Moe have both taken an economics course and so are willing to apply the Coase Theorem and negotiate.Who will compensate the other?

If the marginal cost of reducing pollution is positive:

The tragedy of the commons refers to the:

Lunch in Jamie's dorm is an all-you-can-eat buffet,served from 11 a.m.until 1 p.m.By noon,the buffet is picked over,and by 12:30,there are very few popular items left.The garbage bins,though,are full of food. Refer to the information given above.If the cafeteria changed its policy so that students had to pay for each item chosen,students would:

Shel and Fran are neighbors.They work at the same firm and hold the same title.Shel finds that when Fran's consumption rises,Shel feels worse off.Fran feels the same way towards Shel's consumption. Refer to the information given above.Fran has bought a new Jaguar (a luxury car)and shortly thereafter Shel bought a new Mercedes (also a luxury car).Shel and Fran seem to be:

Your economics professor has announced the following grading policy: For each exam,the highest score in the class will be entered as a 100%;all other scores will be entered as the percent of that top score.For example,if the highest test score is 50 out of 100,it will be counted as a perfect paper,and exams with a score of 40 out of 100 will be entered as an 80%.The final grade for the course will be determined using these adjusted percentages,with 90% and above an A,80% and above a B,70% and above a C,and below 70%,not passing. Refer to the information given above.The students all get together and decide not to study for the next exam because if nobody does extremely well,they will all do okay.This plan:

Taylor lives in a residential neighborhood that prides itself on well-groomed lawns.Taylor's neighbors find that the collective marginal benefit of someone else's well-groomed lawn is $10.Taylor,however,dislikes yard work and receives zero net benefit from an unkempt lawn and a net benefit of -$1 for a well-groomed lawn;the cost of maintaining the lawn is a dollar more than the benefit of having a well-groomed lawn. Unkempt Well-groomed Net Value to Taylor 0 -1 Net Value to Taylor's neighbors 0 +10 Refer to the information given above.If Taylor's lawn is unkempt,the situation is __________ because the total economic surplus is __________.

This graph shows the marginal costs and marginal benefits associated with roadside litter clean up.Assume that the marginal cost and marginal benefit curves slope in the usual directions. Refer to the information given above.From the graph,one can infer that: